Separation of tax service from audit service, going‐concern opinions, and discretionary accruals

2021 ◽  
Author(s):  
Kam‐Wah Lai
Keyword(s):  
Discretionary Accruals ◽  
Going Concern

UKURAN KANTOR AKUNTAN PUBLIK, DISCRETIONARY ACCRUALS DAN OPINI AUDIT GOING CONCERN

2019 ◽  
Vol 15 (1) ◽  
pp. 11
Author(s):  
Ravaela Amba Masiku ◽  
Christine Novita Dewi
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Stock Exchange ◽  
Discretionary Accruals ◽  
Audit Firm ◽  
Going Concern ◽  
Discretionary Accrual ◽  
Audit Firms ◽  
Going Concern Opinion ◽  
Positive Effect

The purpose of this study is to examine auditor’s concervatism in term of their reaction to client’s earnings management behavior and their limitations to issue the going concern opinions (GCO). The population of this study consists of 672 observations from 69 companies are listed on the Indonesia Stock Exchange (BEI) during 2012-2017. The author used the modified Jones model to measure discretionary accruals as a proxy of earnings management. The results of this study indicate that size of audit firm has a positive effect to discretionary accrual. Companies that have been audited by the Big4 tend to apply discretionary accrual in their financial reporting than companies audited by Non-Big4. Further, to strenghten the first hypothesis, we examine the effect of discretionary accruals and going concern opinion on companies that audited by audit firms Big4 lower than companies that audited by audit firms Non-Big4. We found that the result is consistent with the first hypothesis. Keywords : auditor reputation, discretionary accruals, going concern opinion, audit firm  ABSTRAK Tujuan dari penelitian ini adalah untuk menguji konservatisme auditor dalam hal reaksi auditor terhadap akrual diskresioner yang dilakukan oleh perusahaan dan keterbatasan auditor untuk menerbitkan opini Going Concern (GC). Populasi penelitian terdiri dari 672 pengamatan dari 69 perusahaan yang terdaftar di Bursa Efek Indonesia (BEI) selama tahun 2012-2017. Penulis menggunakan model modifikasi Jones untuk mengukur akrual diskresioner sebagai proksi manajemen laba. Hasil dari penelitian ini menjelaskan bahwa ukuran kantor akuntan publik berpengaruh positif terhadap akrual diskresioner, hal tersebut diperkuat dengan pengaruh akrual diskresioner dan opini audit going concern yang diaudit oleh kantor akuntan publik Big4 lebih rendah dari perusahaan yang tidak diaudit oleh kantor akuntan publik Non-Big4. Kata kunci : reputasi auditor, akrual diskresioner, opini audit going concern, kantor akuntan publik

Was Andersen’s audit quality lower than its peers?

2015 ◽  
Vol 30 (8/9) ◽  
pp. 911-962 ◽  
Author(s):  
Krishna Kumar ◽  
Lucy Lim
Keyword(s):  
Big Five ◽  
Design Methodology ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Content Type ◽  
Earnings Response Coefficients ◽  
Going Concern ◽  
Lower Likelihood ◽  
Earnings Response ◽  
Pooled Samples

Purpose – This paper aims to examine whether Andersen’s audit quality in the five years preceding its collapse lagged that of other Big-Five auditors. Design/methodology/approach – This paper compares Andersen’s audit quality and the other Big-Five auditors using five methodologies, namely, earnings response coefficients, magnitudes of abnormal accruals, propensities to issue going-concern opinions, usefulness of going-concern opinions in predicting bankruptcy and the frequency of Accounting and Auditing Enforcement Releases. The comparisons are based on both pooled samples of all observations and propensity-score-based matched-pairs. Findings – The preponderance of evidence shows that Andersen’s audit quality did not differ materially in audit quality from other Big-Five auditors prior to its failure. However, it was found that Andersen’s independence was compromised in the year leading to its collapse (2000), as indicated by the lower likelihood to issue going-concern opinions. Originality/value – This paper complements and improves on Cahan et al. (2011) by using more measures of audit quality, as no one measure is perfect, showing that their results using discretionary accruals are sensitive to the model used and showing that there is a more powerful direct measure of audit quality, namely, going-concern opinions.

The impact of auditor conservatism on accruals and going concern opinion: Iranian angle

2018 ◽  
Vol 11 (4) ◽  
pp. 650-666 ◽  
Author(s):  
Mahdi Salehi ◽  
Hossein Tarighi ◽  
Haydar Sahebkar
Keyword(s):  
Earnings Management ◽  
Emerging Market ◽  
Economic Sanctions ◽  
Discretionary Accruals ◽  
High Quality ◽  
Content Type ◽  
Going Concern ◽  
Abnormal Accruals ◽  
The Impact ◽  
Auditor Conservatism

Purpose The purpose of this study is to examine high-quality auditors’ conservatism in Iran market based on the classification of Tehran Stock Exchange (TSE) in terms of their reaction to client’s earnings management behavior and their limitations to issue the going concern opinions (GCOs) over an eight-year period from 2009 to 2016. Design/methodology/approach The study population consists of 1,376 observations and 172 companies listed on the TSE during the years 2009-2016. Following the prior studies, the authors used the modified Jones model to measure discretionary accruals as a proxy for earnings management. Findings The results witnessed a negative relationship between the size of the audit firm and discretionary accruals; besides, the relationship between abnormal accruals and GCO on companies audited by high-quality audit firms is higher than other companies. In other words, firms with GCO, which were audited by the Iranian large auditors, report negative abnormal accruals less than those audited by non-large auditors. In short, in spite of the special features of Iran market because of economic sanctions, this paper extends prior literature clarifying that auditors’ conservatism induces accrual reversals when auditors issue GCOs. One interpretation of this result is that the existence of such association is because of not only auditor conservatism but also financially distressed firms. Practical implications The outcomes of this paper will help to fill the knowledge gap related to this issue between developing and developed countries because this investigation exposed more than ever the vital role of the auditor as an observer on the financial statements. Without any exaggeration, this research will make investors and stakeholders aware of this fact that auditor conservatism will be effective in reducing the manipulation of financial reporting and agency problems in emerging markets, particularly those markets facing with economic sanctions like Iran. Originality/value Because of Iran’s dire economic situation during the period under consideration, this is one of the most comprehensive research among the countries of the Middle East that surveys the impact of auditor conservatism on accruals and GCO in an emerging market, namely, Iran.

Discretionary Accruals in Italian Private Firms and Non-Linear Bank Loan Granting

2017 ◽  
pp. 83-99
Author(s):  
Elisabetta Mafrolla ◽  
Viola Nobili
Keyword(s):  
Financial Reporting ◽  
Banking System ◽  
Regulatory System ◽  
Discretionary Accruals ◽  
Bank Loans ◽  
Bank Loan ◽  
Banking Union ◽  
Private Firms ◽  
European Banking Union

This paper investigates whether and at what extent private firms reduce the quality of their accruals in order to signal a better portrait to the bank and obtain new or larger bank loans. We measure earnings discretionary accruals of a sample of Italian private firms, testing whether new and larger bank loans are associated with a higher (lower) quality of earnings in borrowers' financial reporting. We study bank loan levels and changes and how they impact discretionary accruals and found that, surprisingly, private firms' discretionary accruals are systematically positively affected by an increase in bank loans, although they are negatively affected by the credit worthiness rating assigned to the borrowers. We find that the monitoring role of the banking system with regard to the adoption of discretionary accruals is effective only when the loan is very large. This paper may have implications for policy-makers as it contributes to the understanding of the shortcomings of the banking regulatory system. This is an extremely relevant issue since the excessive amount of non-performing loans held by Italian banks recently threatened the stability of the European Banking Union as a whole.

The Impact of Going Concern on Financial Reporting Quality: Evidence from Vietnam

2018 ◽  
Vol 34 (3) ◽  
Author(s):  
Phung Anh Thu ◽  
Nguyen Vinh Khuong
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Financial Distress ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Viet Nam ◽  
Listed Firms ◽  
Going Concern ◽  
Debt Covenant

The investigation was conducted to contribute empirical evidence of the association between going concern and financial reporting quality of listed firms on the Vietnam stock market. Based on data from 279 companies listed on the HNX and HOSE exchanges in Vietnam for the period 2009-2015, the quantitative research. Results found that the relationship between the going concern and financial reporting quality of listed firms. Research results are significant for investors, regulators to the transparency of financial reporting information. Keywords Going concern, financial reporting quality, listed firms References Agrawal, K., & Chatterjee, C. (2015). Earnings management and financial distress: Evidence from India. Global Business Review, 16(5_suppl), 140S-154S.Bergstresser, D., & Philippon, T. (2006). CEO incentives and earnings management. Journal of Financial Economics, 80(3), 511–529.Burgstahler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99–126.Charitou, A., Lambertides, N., & Trigeorgis, L. (2007a). Earnings behaviour of financially distressed firms: The role of institutional ownership. Abacus, 43(3), 271–296.Chen, Y., Chen, C., & Huang, S. (2010). An appraisal of financially distressed companies’ earnings management: Evidence from listed companies in China. Pacific Accounting Review, 22(1), 22–41Dechow, P., & Dichev, I. (2002). The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors. The Accounting Review, 77, 35-59.DeFond, M., & Jiambalvo, J. (1994). Debt covenant violation and manipulation of accruals. Journal of Accounting and Economics, 17(1), 145–176.DeFond, M.L., & Park, C.W. (1997). Smoothing income in anticipation of future earnings. Journal of Accounting and Economics, 23(2), 115–139.Dichev, I., & Skinner, D. (2004). Large sample evidence on the debt covenant hypothesis. Journal of Accounting Research, 40(4), 1091–1123.Đinh Thị Thu T., Nguyễn Vĩnh K. (2016). Tác động của hành vi điều chỉnh thu nhập đến khả năng hoạt động liên tục trong kế toán: Nghiên cứu thực nghiệm cho các doanh nghiệp niêm yết tại Việt Nam, Tạp chí phát triển khoa học và công nghệ, Quí 3, tr.96-108.Đỗ Thị Vân Trang (2015). Các mô hình đánh giá chất lượng báo cáo tài chính, Tạp chí chứng khoán Việt Nam, 200, tr 18-21.Habib, A., Uddin Bhuiyan, B., & Islam, A. (2013). Financial distress, earnings management and market pricing of accruals during the global financial crisis. Managerial Finance, 39(2), 155-180.Jaggi, B., & Lee, P. (2002). Earnings management response to debt covenant violations and debt restructuring. Journal of Accounting, Auditing & Finance, 17(4), 295–324.Kasznik, R., (1999). On the association between voluntary disclosure and earnings management. Journal of accounting research, 37(1), pp.57-81.Lu, J. (1999). An empirical study of earnings management by loss-making listed Chinese companies. KuaijiYanjiu (Accounting Research), (9), 25–35.McNichols, M.F. and Stubben, S.R., (2008). Does earnings management affect firms’ investment decisions?. The accounting review, 83(6), pp.1571-1603.Selahudin, N.F., Zakaria, N.B., & Sanusi, Z.M. (2014). Remodelling the earnings management with the appear- ance of leverage, financial distress and free cash flow: Malaysia and Thailand evidences. Journal of Applied Sciences, 14(21), 2644–2661.Skinner, D.J., & Sloan, R. (2002). Earnings surprises, growth expectations, and stock returns or don’t let an earnings torpedo sink your portfolio. Review of Accounting Studies, 7(2/3), 289–312.Sweeney, A.P., (1994). Debt-covenant violations and managers' accounting responses. Journal of Accounting & Economics, 17(3): 281-308.Trần Thị Thùy Linh, Mai Hoàng Hạnh (2015). Chất lượng báo cáo tài chính và kỳ hạn nợ ảnh hưởng đến hiệu quả hoạt động của doanh nghiệp Việt Nam, Tạp chí phát triển kinh tế, 10, tr.27-50.Trương Thị Thùy Dương (2017). Nâng cao chất lượng báo cáo tài chính công ty đại chúng, Tạp chí tài chính, 1(3), tr.55-56.Uwuigbe, Ranti, Bernard, (2015). Assessment of the effects of firm’s characteristics on earnings management of listed firms in Nigeria, Asian Economic and Financial Review,5(2):218-228.

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